Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund's most recent standardized and month-end performance, please click www.advisorshares.com/fund/cws.

September 2018 Portfolio Manager Review

Wall Street’s bullish summer carried over into September as the S&P 500 continued to make new all-time highs. I’m pleased to report that our ETF, the AdvisorShares Focused Equity ETF (NYSE Arca: CWS), also made new all-time highs. For the month, the Net Asset Value of the fund rose by 0.39%, even though the shares finished slightly lower.

Our long-term strategy is working very well for us. The key fact for investors right now is that the U.S. economy continues to do well. In fact, the Federal Reserve has been trying to prevent the economy from growing too fast, or it might spark inflation. On September 26, the Fed raised interest rates. The move was almost universally expected. This was the Fed’s third increase this year and the eighth of the current cycle. The Fed’s target range for overnight interest rates is now 2% to 2.25%. This means that interest rates are basically in line with inflation. We haven’t had positive real rates in a decade.

One bit of news was that in the Fed’s policy statement, the FOMC dropped the word “accommodative” in describing its policy stance. There are folks who pore over every letter of every Fed statement, looking for clues. Fed Chairman Jay Powell cut off any speculation. He said the new language doesn’t reflect any change in the path policy. Powell reiterated that the Fed still sees itself following the same path as before: gradual rate hikes.

Here’s the key part of the policy statement:

"Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance."

I know it sounds dry, but that’s about as optimistic as central bankers get. We’ll see more proof of the Fed’s happier stance when third-quarter earnings are reported. For most of the 25 stocks in our ETF, earnings season runs from mid-October until early November, and I’m expecting more good results.

As we look at the performance numbers for September, one thing strike me is that the dispersion of returns is much narrower than it has been in previous months. In other words, there were no huge winners or huge losers. One of our biggest gainers during September was Danaher (DHR). The company didn’t have any major news during the month, but it looks poised to report more good results in October.

For the last earnings report, not only beat DHR earnings, but also said it will spin off its dental business next year. For Q2, Danaher earned $1.15 per share. They had told us to expect $1.07 to $1.10 per share. For the second time this year, Danaher raised its full-year guidance. The company now expects 2018 earnings to range between $4.43 and $4.50 per share.

The dental spinoff won’t happen until the second half of 2019. The business is currently responsible for about 20% of the company’s overall revenue, but growth has been tepid lately. According to The Wall Street Journal, “Danaher said it expects the dental spinoff to have an investment-grade credit rating and about 12,000 employees.” The spinoff will be tax-free. Danaher gained nearly 5% for us in September.

Anther big winnerin September was Stryker (SYK). The company recently said it’s buying K2M Group Holdings (KTWO) for $27.50 per share. That works out to $1.2 billion. KTWO is a big player in the spinal biz. According to the WSJ, “Stryker said the deal wouldn’t affect earnings this year. It expects to report adjusted earnings of $7.22 to $7.27 this year.”

For Q3, Stryker is looking for earnings between $1.65 and $1.70 per share. Wall Street had been expecting $1.69 per share. I think we dodged a bullet when the Boston Scientific deal fell through.

Interestingly, shares of Stryker dropped after the July earnings report, but not by much. This is why we use a long-term focus at CWS. High-quality stocks may get knocked around in the short-term, but over time, their quality shines through. Stryker remains a very sound company. The stock gained 4.9% in September.

Portfolio Attribution

Here’s how all 25 positions performed during the month of June:

Company

Symbol

31-Aug

28-Sep

Gain/Loss

Danaher

DHR

$103.54

$108.66

4.94%

Church & Dwight

CHD

$56.58

$59.37

4.93%

Stryker

SYK

$169.43

$177.68

4.87%

Snap-on

SNA

$176.78

$183.60

3.86%

Ingredion

INGR

$101.07

$104.96

3.85%

Ross Stores

ROST

$95.78

$99.10

3.47%

Fiserv

FISV

$80.07

$82.38

2.88%

AFLAC

AFL

$46.24

$47.07

1.79%

Check Point Software

CHKP

$116.19

$117.67

1.27%

Continent Building Pr

CBPX

$37.30

$37.55

0.67%

Hormel Foods

HRL

$39.15

$39.40

0.64%

Sherwin-Williams

SHW

$455.58

$455.21

-0.08%

Becton, Dickinson

BDX

$261.87

$261.00

-0.33%

JM Smucker

SJM

$103.38

$102.61

-0.74%

Signature Bank

SBNY

$115.74

$114.84

-0.78%

Alliance Data Systems

ADS

$238.58

$236.16

-1.01%

Cerner

CERN

$65.11

$64.41

-1.08%

Torchmark

TMK

$87.92

$86.69

-1.40%

Cognizant Technology

CTSH

$78.43

$77.15

-1.63%

Intercont Exchange

ICE

$76.23

$74.89

-1.76%

FactSet Research Sys

FDS

$229.39

$223.71

-2.48%

Wabtec

WAB

$108.32

$104.88

-3.18%

RPM International

RPM

$67.50

$64.94

-3.79%

Carriage Services

CSV

$22.77

$21.55

-5.36%

Moody's

MCO

$178.02

$167.20

-6.08%

Source: Yahoo Finance

Portfolio Changes

The philosophy of the AdvisorShares Focused Equity ETF is to make portfolio changes just once a year. At the end of the year, we add five stocks and delete five. We made our changes in December, so there were no changes to make in September.

In a first for the ETF industry, the portfolio manager of CWS has “skin in the game.” The manager’s compensation is directly tied to portfolio’s performance. Using the trailing 12-month returns of CWS vs. its S&P 500 Index benchmark, stronger outperformance is rewarded with a larger management fee while weaker underperformance is penalized with a smaller management fee. The CWS fulcrum fee was 0.77% during September 2018. After the Fund’s September performance, the CWS fulcrum fee will adjust to 0.73% in October 2018.

Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting www.advisorshares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

There is no guarantee that the Fund will achieve its investment objective. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual issuers, industries or the stock market as a whole. Shares of the Fund may trade above or below their net asset value (“NAV”). The trading price of the Fund’s shares may deviate significantly from their NAV during periods of market volatility. There can be no assurance that an active trading market for the Fund’s shares will develop or be maintained. In addition, equity markets tend to move in cycles which may cause stock prices to fall over short or extended periods of time. Other Fund risks include market risk, liquidity risk, large cap, mid cap, and small cap risk. Please see prospectus for details regarding risk.

Shares are bought and sold at market price (closing price) not NAV and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times. Holdings and allocations are subject to risks and to change. The views in this commentary are those of the portfolio manager and may not reflect his views on the date this material is distributed or anytime thereafter.

The views in this material were those of the Portfolio Manager and may not reflect his views on the date this material is distributed or anytime thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.

Definition:

The S&P 500 Index is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks. One cannot invest directly in an index.